SMCI Surges 69.3% in 3 Months: Should You Buy, Sell or Hold the Stock?

Super Micro Computer SMCI stock has climbed 69.3% in the past three months, outperforming the Zacks Computer- Storage Devices industry’s return of 54.8%.

SMCI 3 Months Performance Chart

The stock has also been highly volatile. However, its recent rise in price has made it overvalued compared to the Zacks Computer- Storage Devices industry. At present, SMCI stock trades at a forward 12 months P/E ratio of 19.49X, which is higher than the 18.59X of the Zacks Computer- Storage Devices industry’s ratio of 18.59X.

SMCI Forward 12 Months (P/E) Valuation Chart

As the stock’s recent uptick has made it significantly overvalued, investors are left wondering — should they hold on to SMCI stock, or is caution the wiser path?

Rising Competition in Storage and Server Space

Strong competition from the global storage and server market by leading players like Pure Storage PSTG, Dell Technologies DELL and Hewlett Packard Enterprise HPE is also a concern for investors. Pure Storage provides a range of modern storage solutions through its offerings like FlashArray, FlashBlade and Pure Cloud Block Store to serve the purpose of providing All-Flash performance, cloud integration, AI and simplified management.

Dell Technologies is also experiencing massive traction in its AI-optimized servers, which grew 16% year over year. In the first quarter of fiscal 2026, DELL announced that it had received orders worth $12.1 billion for its AI servers, which has surmounted to become $14.4 billion in AI backlogs. Hewlett Packard Enterprise offers a range of server services, including HPE ProLiant, HPE Synergy, HPE BladeSystem and HPE Moonshot servers. In the second quarter of fiscal 2025, Hewlett Packard Enterprise’s server segment sales grew 6% year over year due to strong demand for its AI servers.

Due to these factors, SMCI is facing margin contraction due to the growing price competition from established competitors. Furthermore, price adjustments from its clients as they are second-guessing their shift from older to newer platforms like Blackwell are also weighing on the SMCI’s margins.

SMCI Faces Margin Compression Headwinds

Super Micro Computer is facing some near-term headwinds like delayed purchasing decisions from customers as they are evaluating the adoption of next-generation AI platforms. In the direct liquid cooling (DLC) front, SMCI is experiencing robust traction, so much so that it can be inferred that SMCI’s DLC offerings are driving the company.

However, SMCI’s gross margin has been moving inconsistently for the past several quarters, with a declining trend. In the third quarter of fiscal 2025, Super Micro Computer’s non-GAAP gross margin contracted 590 basis points year over year and 220 basis points sequentially to 9.7%.

In its last reported quarter, SMCI had to bear the growing costs associated with its newest products that are facing high traction. Furthermore, Super Micro Computer’s margins are facing pressure from high inventory reserves for older-generation products. Competitive pricing strategy to boost its DLC AI GPU cluster adoption has shot up the costs, resulting in margin contraction.

Additionally, higher upfront costs associated with ramping up production for its DLC technology are weighing on Super Micro Computer’s gross margin. The Zacks Consensus Estimates for the company’s fiscal 2025 bottom line is pegged at $2.07, indicating a year-over-year decline of 6.33%.

Conclusion: Sell SMCI Stock Now

Super Micro Computer is facing near-term challenges stemming from delayed purchasing decisions from customers and margin contraction from pricing pressure. The stock is also overvalued considering the growth challenges that it is facing at present.

Considering all these factors, we suggest that investors should stay away from this Zacks Rank #4 (Sell) stock at present.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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